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Student Bankruptcy: Filing for Bankruptcy After University or College?

What You Should Know If You Cannot Pay Your Student Loans

It is very common for people coming out of university or community college to be burdened by significant debt levels. A significant amount of this debt might be for student loans and in some instances other types of unsecured consumer debt—primarily credit card debt.

The purpose of this article is to address some of the key issues facing people who owe a significant amount of money because of student loans.

This is the First Article In a Series of Four About Student Bankruptcy:

To find out more about the background information filing for bankruptcy after university or college? read on, you can also skip to another section by clicking one of the links below.

Part One: Background Information

People in Their Twenties Lack Experience Handling Debt

It is one of the many ironies in life that many people recently completing post-secondary education have substantial debt levels at a time when, based upon their life experience to date, they might be the least capable of managing this debt simply due to a lack of experience handling their finances and immaturity regarding financial literacy.

Some Forms Of Relief Might Be Available Through The Institution That Provided The Loan

Depending upon where you obtained your student loan you might be able to apply for some type of debt relief to the organization that lent you the student loan. This might take the form of a reduction in the amount of your monthly payment or some type of interest relief. To learn more about what type of relief might be available, you should contact the organization which provided you with the student loan.

Limited Options Available For Those With Student Loan Debts

A consumer has fewer options for dealing with their student loan debt compared with other types of unsecured consumer debt such as credit card debt. The following chart summarizes the options that a consumer has for dealing with various types of unsecured debt including student loans.

Unsecured Consumer Debt

Student Loan Debt

Settling debt by negotiating a one-time lump sum payment as settlement in full

Potentially, after the debt has been unpaid for six months

This option might be available in some instances involving delinquent student loans

Making monthly payments

Yes

Yes

Consumer proposal

Yes

Yes, might encounter major problems where the consumer proposal is filed less than seven years from the date of end of debtor?s education

Personal bankruptcy

Yes

Discharge with respect to student loan indebtedness only available where (1) discharged bankrupt ceased attending school seven years prior to filing for personal bankruptcy, or (2) once a discharged bankrupt has been out of school for five years after the date of filing for bankruptcy a debtor can apply for a court-ordered discharge of their student loan debt

Canadian Insolvency Laws and Unsecured Consumer Debt

In Canada, with few exceptions, all of the unsecured debts of a consumer are discharged or forgiven in a consumer proposal or a bankruptcy. Special treatment, however, is given to unpaid student loans under Canadian insolvency law.

In Canada, under the federal Bankruptcy and Insolvency Act (BIA), we have special rules that apply to unpaid student loans. These laws are punitive because they are harsher on consumers than the treatment afforded to other types of unsecured debt which I will refer to as unsecured consumer debt.

Not all loans to students are treated as student loans under Canada’s insolvency laws

We know that there are special rules when we are dealing with student loans and that people with these debts receive harsher treatment than those with garden variety debts. It is, however, important to know that not all debts arising from loans made to students receive this harsher treatment. Some chartered banks in Canada might offer special loans to students attending a post-secondary education which do not fall within the definition of student loans. These loans might simply be garden variety bank loans which are marketed solely to students attending a post-secondary institution.